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US market closed lower on weak economic data and European concern

23 Feb 2012 Evaluate

The US markets closed lower on Wednesday, weaker-than-estimated economic data from China and Europe and domestic home sales in January that even though rose at the fastest pace since May 2010 but remained lower than anticipated. The National Association of Realtors reported existing-home sales rose 4.3% in January to a seasonally adjusted annual rate of 4.57 million. Meanwhile, the President Barack Obama’s administration took aim at so-called corporate tax havens in a broad proposed overhaul that would lower the tax rate for companies and encourage job creation in the United States. Treasury Secretary Timothy Geithner expressed disdain for the current business tax system, calling it uncompetitive, unfair and inefficient and stating that it’s riddled with special favors. The Obama administration proposed cutting the US corporate rate to 28% from 35% while eliminating dozens of tax breaks. Also, the newly formed Consumer Financial Protection Bureau began an inquiry into overdraft fees, a multibillion-dollar business for US financial institutions.

The European services and manufacturing output shrank in February, according to Markit Economics. Investors were cautious on speculation that whether Greece will be able to fulfill the conditions set by its lenders. Eurozone finance ministers agreed a €130bn rescue plan for Greece to avert a messy default, including a bond swap to shave €100bn off Greece’s debt burden. Bondholders will take losses of 53.5% on the nominal value of their Greek bonds as part of the swap, with actual losses put at around 74% in real terms. The ECB has agreed to a complex plan to ensure Greek bonds can still be used as collateral in its lending operations whilst in the process of being swapped. Greece will take a loan from the European Financial Stability Facility which will come in the form of EFSF bonds. Further, ratings agency Fitch has cut Greece’s long-term ratings to its lowest rating above a default, becoming the first ratings agency to make the widely expected downgrade after the country announced a bond exchange plan to ease its massive debt burden.

The Dow Jones Industrial Average closed lower by 27.02 points, or 0.21 percent, at 12,938.70. The S&P 500 lost 4.55 points, or 0.33 percent, at 1,357.66, while the Nasdaq was down by 15.40 points, or 0.52 percent, at 2,933.17.

Indian ADRs closed mixed on Wednesday, Tata Communications was up 0.68%, Infosys Technologies was up 0.56% and Dr. Reddy’s Lab was up 0.26%. On the flip side, ICICI Bank was down 1.18% and HDFC Bank was down 1.11%.

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